1992 Reports

Labor and the Emerging World Economy

Bloom, David E.; Brender, Adi

This paper explores the emergence of a world economy since 1950 and its implications for the world's labor force. There are five main sets of conclusions. First, the share of the world's labor force located in developing countries increased significantly between 1950 and 1990. Productivity differentials between high - and low-income countries did not decrease over time, and wage differentials were even larger than productivity differentials. These results suggest that whatever integration took place between the industrial and developing countries was insufficient to overcome the large differentials in labor force growth rates between them. Second, although the integration of national economies since 1950 has been considerable, the world economy is still in its adolescence. Rapid integration has occurred among the industrial economies, but integration among the developing economies and between the industrial and the developing economies has proceeded slowly. Third, international labor mobility can account for little, if any, economic integration since 1950. The economic integration that has been achieved is due mainly to the increased flow of capital across international boundaries and, more important, to the dramatic increase in trade, especially among the industrial countries. These developments have been driven by technological changes that have reduced the costs of transportation and communication, and by institutional changes that have reduced the barriers to international labor mobility. Fourth, these patterns of integration are associated with a sharp decline in income inequality among the industrial economies, but with some rise in world income inequality as the income gap between the industrial and developing countries has increased. Finally, the large increase in developing economies share of the world labor force projected for the next few decades will magnify their incentives to integrate more closely among themselves and with the industrial economies. World income per capital will be promoted by such integration, which is likely to occur through increased international trade and international relocation of jobs, not through a substantial rise in international labor mobility.